How to calculate income tax on Kisan Vikas Patra (KVP). Can tax be paid on its interest on annual basis?
— Rajeev Kaushiko
If the taxpayer follows the ‘cash basis’ of accounting, interest from Kisan Vikas Patra (KVP) can be taxed in the year of its maturity/premature encashment. It will be taxable at the applicable slab rates for such year.
On the other hand, if the taxpayer follows the ‘Accrual Basis’ of accounting, the interest earned for each year should be calculated at the applicable rate of interest and will be taxable at the applicable slab rates for such respective years.
I’ve invested around 1 lakh in mutual funds. While withdrawing amount, do I need to pay income tax if return exceeds 1 lakh after 10 years, especially if I have no other income?
– Name withheld on request
We have assumed that you have invested in these mutual funds on or after 1st February 2018. Based on the limited facts available, if the unit of the mutual fund is held for more than 12 months (in the case of equity-oriented funds) or more than 36 months (in the case of any other mutual fund), that long-term capital would qualify as an asset and the taxation for Long Term Capital Gains Income (LTCG) would be as follows:
One. Equity Oriented Mutual Funds: As per Section 112A of the IT Act, 1961, LTCG plus 1 lakh @ 10% (without adjustment of cost inflation index) will be taxable – plus applicable cess and surcharge;
b. Other Mutual Funds: As per section 112 of the Act, LTCG @ 20% (after adjustment for cost inflation index) from sale of units will be taxable – plus applicable cess and surcharge
Further, assuming that you qualify as a resident of India and you will not have any income other than LTCG from the sale of Mutual Fund units in the year of such sale, while computing the tax liability specified above, reduce LTCG The maximum amount which is not chargeable to income-tax (i.e. at present 2.5 lakh for persons below 60 years of age). Also, depending on the level of income, relief under section 87A (currently available) can be assessed on tax liability arising on sale of mutual funds other than equity-oriented mutual funds under section 112 of the Act . This is subject to the tax rules prevailing in the year of sale.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.